News Release

SAN DIEGO--(BUSINESS WIRE)--Jan. 28, 2014--
Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for
the fourth quarter and fiscal year 2013.

Fourth quarter 2013 results:

Revenue of $387 million, a 25% increase compared to $309 million in
the fourth quarter of 2012

GAAP net income for the quarter of $81 million, or $0.56 per diluted
share, compared to $72 million, or $0.53 per diluted share, for the
fourth quarter of 2012

Non-GAAP net income for the quarter of $65 million, or $0.45 per
diluted share, compared to $57 million, or $0.42 per diluted share,
for the fourth quarter of 2012 (see the table entitled “Itemized
Reconciliation Between GAAP and Non-GAAP Net Income” for a
reconciliation of these GAAP and non-GAAP financial measures)

Cash flow from operations of $127 million and free cash flow of $100
million for the quarter

Gross margin in the fourth quarter of 2013 was 66.9% compared to 65.8%
in the prior year period. Excluding the effect of non-cash charges
associated with stock compensation, amortization of acquired intangible
assets, legal contingencies, and inventory revaluation adjustments,
non-GAAP gross margin was 71.4% for the fourth quarter of 2013 compared
to 68.5% in the prior year period.

Research and development (R&D) expenses for the fourth quarter of 2013
were $76.7 million compared to $56.9 million in the fourth quarter of
2012. R&D expenses included $10.9 million and $8.0 million of non-cash
stock compensation expense in the fourth quarters of 2013 and 2012,
respectively. Excluding these charges and contingent compensation, R&D
expenses as a percentage of revenue were 17.0% compared to 15.4% in the
prior year period.

Selling, general and administrative (SG&A) expenses for the fourth
quarter of 2013 were $111.6 million compared to $79.7 million for the
fourth quarter of 2012. SG&A expenses included $16.8 million and $14.1
million of non-cash stock compensation expense in the fourth quarters of
2013 and 2012, respectively. Excluding these charges, contingent
compensation and amortization of acquired intangible assets, SG&A
expenses as a percentage of revenue were 22.2% compared to 19.9% in the
prior year period.

Depreciation and amortization expenses were $27.2 million and capital
expenditures were $27.3 million during the fourth quarter of 2013. The
Company ended the fourth quarter of 2013 with $1.17 billion in cash,
cash equivalents and short-term investments, compared to $1.35 billion
as of December 30, 2012.

Fiscal 2013 results:

Revenue of $1.42 billion, a 24% increase over the $1.15 billion
reported in fiscal 2012

GAAP net income of $125 million, or $0.90 per diluted share, compared
to $151 million, or $1.13 per diluted share in fiscal 2012

Non-GAAP net income of $250 million, or $1.80 per diluted share,
compared to $210 million, or $1.59 per diluted share, in fiscal 2012
(see table entitled “Itemized Reconciliation Between GAAP and Non-GAAP
Net Income” for a reconciliation of these GAAP and non-GAAP financial
measures)

Gross margin for fiscal 2013 was 64.2% compared to 67.4% in fiscal 2012.
Cost of product sales during 2013 included impairment charges of $25.2
million related to a decision to discontinue a non-core product line.
Excluding the effect of these charges as well as non-cash charges
associated with stock compensation, amortization of acquired intangible
assets, legal contingencies, and inventory revaluation adjustments,
non-GAAP gross margin was 70.1% for fiscal 2013 compared to 69.7% in
fiscal 2012.

R&D expenses for fiscal 2013 were $276.7 million compared to $231.0
million in fiscal 2012. R&D expenses included $37.4 million and $30.9
million of non-cash stock compensation expense in fiscal 2013 and 2012,
respectively. R&D expenses for fiscal 2012 included an impairment charge
of $21.4 million related to an in-process research and development
asset. Excluding these charges and contingent compensation, R&D expenses
as a percentage of revenue were 16.8% compared to 15.3% in the prior
year.

SG&A expenses for fiscal 2013 were $381.0 million compared to $286.0
million in fiscal 2012. SG&A expenses included $61.4 million and $55.4
million of non-cash stock compensation expense in fiscal 2013 and 2012,
respectively. Excluding these charges, contingent compensation, and
amortization of acquired intangible assets, SG&A expenses as a
percentage of revenue were 20.8% compared to 19.5% in the prior year.

“The fourth quarter capped off a spectacular year for Illumina with
robust performance across all products and geographies,” stated Jay
Flatley, CEO. “We made significant progress on key R&D programs which
allowed us to introduce new products in early 2014 that will once again
redefine the trajectory of sequencing. We plan to leverage this momentum
in 2014 to more broadly enable the adoption of genomics.”

Updates since our last earnings release:

Introduced HiSeq XTM Ten Sequencing System, enabling
‘factory scale’ sequencing and announced sales to Macrogen, the Broad
Institute, the Garvan Institute of Medical Research, and the New York
Genome Center

The non-GAAP financial guidance discussed below reflects certain pro
forma adjustments to assist in analyzing and assessing our core
operational performance. Please see our Reconciliation of Non-GAAP
Financial Guidance included in this release for a reconciliation of the
GAAP and non-GAAP financial measures.

For fiscal 2014 the Company is projecting approximately 15% to 17%
revenue growth and non-GAAP earnings per fully diluted share of $2.00 to
$2.06. These projections assume full year non-GAAP gross margin of
approximately 70.0%, a pro forma tax rate of approximately 29.5% and
stock compensation expense of approximately $128 million. Full-year
weighted average diluted shares outstanding, for the measurement of pro
forma amounts, is expected to be approximately 148 million shares
assuming a stock price of $114.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern
Time) on Tuesday, January 28, 2014. Interested parties may listen to the
call by dialing 888.713.4213 (passcode: 72154577), or if outside North
America by dialing 1.617.213.4865 (passcode: 72154577). Individuals may
access the live teleconference in the Investor Relations section of
Illumina’s web site under the “Company” tab at www.illumina.com.

A replay of the conference call will be available from 6:00 pm Pacific
Time (9:00 pm Eastern Time) on January 28, 2014 through February 4, 2014
by dialing 888.286.8010 (passcode: 88834345), or if outside North
America by dialing 1.617.801.6888 (passcode: 88834345).

Statement regarding use of non-GAAP financial measures

The Company reports non-GAAP results for diluted net income per share,
net income, gross margins, operating expenses, operating margins, other
income, and free cash flow in addition to, and not as a substitute for,
or superior to, financial measures calculated in accordance with GAAP.

The Company’s financial measures under GAAP include substantial charges
related to stock compensation expense, legal contingencies, amortization
expense related to acquired intangible assets, non-cash interest expense
associated with the Company’s convertible debt instruments that may be
settled in cash, impairment charges, costs related to the unsolicited
tender offer for the Company’s stock, acquisition related expense, and
others that are listed in the itemized reconciliations between GAAP and
non-GAAP financial measures included in this press release. Per share
amounts also include the double dilution associated with the accounting
treatment of the Company’s 0.625% convertible senior notes outstanding
and the corresponding call option overlay. Management believes that
presentation of operating results that excludes these items and per
share double dilution provides useful supplemental information to
investors and facilitates the analysis of the Company’s core operating
results and comparison of operating results across reporting periods.
Management also believes that this supplemental non-GAAP information is
therefore useful to investors in analyzing and assessing the Company’s
past and future operating performance.

The Company encourages investors to carefully consider its results under
GAAP, as well as its supplemental non-GAAP information and the
reconciliation between these presentations, to more fully understand its
business. Reconciliations between GAAP and non-GAAP results are
presented in the tables of this release.

Use of forward-looking statements

This release contains projections, information about our financial
outlook, earnings guidance, and other forward-looking statements that
involve risks and uncertainties. These forward-looking statements are
based on our expectations as of the date of this release and may differ
materially from actual future events or results. Among the important
factors that could cause actual results to differ materially from those
in any forward-looking statements are (i) our ability to develop and
commercialize further our sequencing, array, and consumables
technologies and to deploy new products and applications, and expand the
markets, for our technology platforms; (ii) our ability to manufacture
robust instrumentation and consumables; (iii) our expectations and
beliefs regarding future conduct and growth of the business and the
markets in which we operate; (iv) challenges inherent in developing,
manufacturing, and launching new products and services; and (v) our
ability to maintain our revenue and profitability during periods of
research funding reduction or uncertainty and adverse economic and
business conditions, together with other factors detailed in our filings
with the Securities and Exchange Commission, including our most recent
filings on Forms 10-K and 10-Q, or in information disclosed in public
conference calls, the date and time of which are released beforehand. We
undertake no obligation, and do not intend, to update these
forward-looking statements, to review or confirm analysts’ expectations,
or to provide interim reports or updates on the progress of the current
financial quarter.

About Illumina

Illumina (www.illumina.com)
is a leading developer, manufacturer, and marketer of life science tools
and integrated systems for the analysis of genetic variation and
function. We provide innovative sequencing and array-based solutions for
genotyping, copy number variation analysis, methylation studies, gene
expression profiling, and low-multiplex analysis of DNA, RNA, and
protein. We also provide tools and services that are fueling advances in
consumer genomics and diagnostics. Our technology and products
accelerate genetic analysis research and its applications, paving the
way for molecular medicine and ultimately transforming healthcare.

Illumina, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

December 29,

2013

December 30,

2012

ASSETS

(unaudited)

Current assets:

Cash and cash equivalents

$

711,637

$

433,981

Short-term investments

453,966

916,223

Accounts receivable, net

238,946

214,975

Inventory

154,099

158,718

Deferred tax assets, current portion

36,076

30,451

Prepaid expenses and other current assets

22,811

32,700

Total current assets

1,617,535

1,787,048

Property and equipment, net

202,666

166,167

Goodwill

723,061

369,327

Intangible assets, net

331,173

130,196

Deferred tax assets, long-term portion

88,480

40,183

Other assets

56,091

73,164

Total assets

$

3,019,006

$

2,566,085

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

73,655

$

65,727

Accrued liabilities

219,120

201,877

Long-term debt, current portion

29,288

36,967

Total current liabilities

322,063

304,571

Long-term debt

839,305

805,406

Long-term legal contingencies

132,933

—

Other long-term liabilities

191,221

134,369

Conversion option subject to cash settlement

282

3,158

Stockholders’ equity

1,533,202

1,318,581

Total liabilities and stockholders’ equity

$

3,019,006

$

2,566,085

Illumina, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(unaudited)

Three Months Ended

Years Ended

December 29,

2013

December 30,

2012

December 29,

2013

December 30,

2012

Revenue:

Product revenue

$

336,386

$

278,933

$

1,264,656

$

1,055,826

Service and other revenue

50,940

30,332

156,522

92,690

Total revenue

387,326

309,265

1,421,178

1,148,516

Cost of revenue:

Cost of product revenue (a)

99,795

86,348

407,877

317,283

Cost of service and other revenue (a)

19,079

14,791

67,811

43,552

Amortization of acquired intangible assets

9,206

4,479

33,603

14,153

Total cost of revenue

128,080

105,618

509,291

374,988

Gross profit

259,246

203,647

911,887

773,528

Operating expense:

Research and development (a)

76,728

56,907

276,743

231,025

Selling, general and administrative (a)

111,649

79,715

381,040

285,991

Acquisition related (gain) expense, net

(5,771

)

314

(11,617

)

2,774

Headquarter relocation

2,856

2,883

2,624

26,328

Legal contingencies

—

—

115,369

—

Unsolicited tender offer related expense

—

4,394

13,621

23,136

Restructuring

—

88

—

3,522

Total operating expense

185,462

144,301

777,780

572,776

Income from operations

73,784

59,346

134,107

200,752

Other income, net

46,585

44,557

25,207

21,856

Income before income taxes

120,369

103,903

159,314

222,608

Provision for income taxes

39,708

32,000

34,006

71,354

Net income

$

80,661

$

71,903

$

125,308

$

151,254

Net income per basic share

$

0.64

$

0.58

$

1.00

$

1.23

Net income per diluted share

$

0.56

$

0.53

$

0.90

$

1.13

Shares used in calculating basic net income per share

126,711

123,211

125,076

122,999

Shares used in calculating diluted net income per share

143,854

135,393

139,936

133,693

(a) Includes total stock-based compensation expense for
stock-based awards:

(a) Free cash flow, which is a non-GAAP financial measure, is
calculated as net cash provided by operating activities reduced by
purchases of property and equipment. Free cash flow is useful to
management as it is one of the metrics used to evaluate our performance
and to compare us with other companies in our industry. However, our
calculation of free cash flow may not be comparable to similar measures
used by other companies.

Illumina, Inc.

Results of Operations - Non-GAAP

(In thousands, except per share amounts)

(unaudited)

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME PER
SHARE:

Three Months Ended

Years Ended

December 29,

2013

December 30,

2012

December 29,

2013

December 30,

2012

GAAP net income per share - diluted

$

0.56

$

0.53

$

0.90

$

1.13

Pro forma impact of weighted average shares (a)

0.01

—

0.01

0.02

Adjustments to net income:

Cost-method investment related gain, net (b)

(0.39

)

(0.34

)

(0.44

)

(0.35

)

Amortization of acquired intangible assets

0.09

0.04

0.32

0.12

Non-cash interest expense (c)

0.06

0.07

0.26

0.27

Legal contingencies (d)

0.04

—

0.96

0.02

Acquisition related (gain) expense, net (e)

(0.04

)

—

(0.08

)

0.02

Contingent compensation expense (f)

0.04

0.03

0.10

0.07

Headquarter relocation (g)

0.02

0.02

0.02

0.20

Impairments (h)

—

—

0.18

0.16

Unsolicited tender offer related expense

—

0.03

0.10

0.17

Loss on extinguishment of debt

—

—

—

—

Inventory revaluation adjustment (i)

—

0.01

—

0.01

Recovery of previously impaired note receivable

—

(0.04

)

—

(0.05

)

Restructuring

—

—

—

0.03

Incremental non-GAAP tax benefit (expense) (j)

0.06

0.07

(0.53

)

(0.23

)

Non-GAAP net income per share - diluted (k)

$

0.45

$

0.42

$

1.80

$

1.59

Shares used in calculating non-GAAP diluted net income per share

142,815

134,348

138,888

132,725

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:

GAAP net income

$

80,661

$

71,903

$

125,308

$

151,254

Cost-method investment related gain, net (b)

(55,244

)

(45,911

)

(61,357

)

(45,911

)

Amortization of acquired intangible assets

12,896

5,411

44,685

15,541

Non-cash interest expense (c)

9,182

8,950

36,403

35,180

Legal contingencies (d)

5,921

—

133,701

3,021

Acquisition related (gain) expense, net (e)

(5,771

)

314

(11,617

)

2,774

Contingent compensation expense (f)

5,486

4,347

13,610

9,151

Headquarter relocation (g)

2,856

2,883

2,624

26,328

Impairments (h)

—

—

25,214

21,438

Unsolicited tender offer related expense

—

4,394

13,621

23,136

Loss on extinguishment of debt

—

—

555

—

Inventory revaluation adjustment (i)

—

1,458

458

1,458

Recovery of previously impaired note receivable

—

(6,000

)

—

(6,000

)

Restructuring

—

88

—

3,522

Incremental non-GAAP tax benefit (expense) (j)

8,517

8,963

(73,542

)

(30,464

)

Non-GAAP net income (k)

$

64,504

$

56,800

$

249,663

$

210,428

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER
OF SHARES:

Weighted average shares used in calculation of GAAP diluted net
income per share

(a) Pro forma impact of weighted average shares includes the
impact of double dilution associated with the accounting treatment of
the Company’s outstanding convertible debt and the corresponding call
option overlay.

(b) Cost-method investment related gain, net in 2013 primarily
consisted of a $55.2 million gain from the sale of our minority interest
in Oxford Nanopore Technologies Ltd. during Q4. Cost-method investment
related gain, net in 2012 consisted of a $48.6 million gain from the
sale of our minority interest in deCODE Genetics offset by a $2.7
million impairment of another cost-method investment.

(c) Non-cash interest expense is calculated in accordance with
the authoritative accounting guidance for convertible debt instruments
that may be settled in cash.

(d) Legal contingencies during fiscal year 2013 primarily
represented charges recorded based on a judgment associated with the
patent litigation brought by Syntrix Biosystems, Inc., or Syntrix.
Illumina continues to believe that Syntrix’s claims are without merit
and are not supported by the law or facts. Accordingly, on December 3,
2013, Illumina filed an appeal to the court challenging the judgment.

(e) Acquisition related (gain) expense, net during fiscal year
2013 consisted primarily of $18.8 million in net gains from changes in
fair value of contingent consideration, of which $7.8 million was
recorded in Q4. Such gains were partially offset by transaction and
other acquisition related costs of $7.2 million, of which $2.0 million
was recorded in Q4. Acquisition related (gain) expense, net in fiscal
year 2012 consisted of $2.0 million in net loss from changes in fair
value of contingent consideration, of which $0.3 million was recorded in
Q4, and $0.8 million in transaction costs related to the acquisition of
BlueGnome Ltd. in Q3.

(g) Headquarter relocation during fiscal year 2013 and 2012
primarily consisted of additional cease-use loss recorded due to a delay
in the sublease of our prior headquarters and accretion of interest
expense recorded on lease exit liability during each year. Headquarter
relocation in fiscal year 2013 was partially offset by a gain on lease
exit liability recorded in Q2 2013 as a result of the Company entering
into a sublease for a portion of its prior headquarters at a more
favorable rate than previously estimated.

(h) Impairment charges of $25.2 million were recorded in fiscal
year 2013 due to a decision to discontinue a non-core product line. The
impairment charge in fiscal year 2012 related to an in-process research
and development intangible asset.

(i) Inventory revaluation adjustments of $0.5 million in 2013 and
$1.5 million in 2012 represented additional cost of goods sold
recognized from inventories revalued upon acquisitions of Verinata
Health, Inc. and BlueGnome Ltd., respectively.

(k) Non-GAAP net income and net income per share exclude the
effect of the pro forma adjustments as detailed above. Non-GAAP diluted
net income and net income per share are key drivers of our core
operating performance and major factors in management’s bonus
compensation each year. Management has excluded the effects of these
items in these measures to assist investors in analyzing and assessing
our past and future core operating performance.

Illumina, Inc.

Results of Operations - Non-GAAP (continued)

(Dollars in thousands)

(unaudited)

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF
OPERATIONS AS A PERCENT OF REVENUE:

(a) Legal contingencies during fiscal year 2013 primarily
represented charges recorded based on a judgment associated with the
patent litigation brought by Syntrix Biosystems, Inc., or Syntrix.
Illumina continues to believe that Syntrix’s claims are without merit
and are not supported by the law or facts. Accordingly, on December 3,
2013, Illumina filed an appeal to the court challenging the judgment.

(b) Impairment charges of $25.2 million were recorded in fiscal
year 2013 due to a decision to discontinue a non-core product line. The
impairment charge in fiscal year 2012 related to an in-process research
and development intangible asset.

(c) Inventory revaluation adjustments of $0.5 million in 2013 and
$1.5 million in 2012 represented cost of goods sold recognized from
inventories revalued upon the acquisitions of Verinata Health, Inc. and
BlueGnome Ltd., respectively.

(d) Non-GAAP gross profit, included within the non-GAAP operating
profit, is a key measure of the effectiveness and efficiency of
manufacturing processes, product mix and the average selling prices of
the Company’s products and services. Non-GAAP operating profit, and
non-GAAP other income, net, exclude the effects of the pro forma
adjustments as detailed above. Management has excluded the effects of
these items in these measures to assist investors in analyzing and
assessing past and future core operating performance.

(f) Acquisition related (gain) expense, net during fiscal year
2013 consisted primarily of $18.8 million in net gains from changes in
fair value of contingent consideration, of which $7.8 million was
recorded in Q4. Such gains were partially offset by transaction and
other acquisition related costs of $7.2 million, of which $2.0 million
was recorded in Q4. Acquisition related (gain) expense, net in fiscal
year 2012 consisted of $2.0 million in net loss from changes in fair
value of contingent consideration, of which $0.3 million was recorded in
Q4, and $0.8 million in transaction costs related to the acquisition of
BlueGnome Ltd. in Q3.

(g) Headquarter relocation during fiscal year 2013 and 2012
primarily consisted of additional cease-use loss recorded due to a delay
in the sublease of our prior headquarters and accretion of interest
expense recorded on lease exit liability during each year. Headquarter
relocation in fiscal year 2013 was partially offset by a gain on lease
exit liability recorded in Q2 2013 as a result of the Company entering
into a sublease for a portion of its prior headquarters at a more
favorable rate than previously estimated.

(h) Cost-method investment related gain, net in 2013 primarily
consisted of a $55.2 million gain from the sale of our minority interest
in Oxford Nanopore Technologies Ltd. during Q4. Cost-method investment
related gain, net in 2012 consisted of a $48.6 million gain from the
sale of our minority interest in deCODE Genetics offset by a $2.7
million impairment of another cost-method investment.

(i) Non-cash interest expense is calculated in accordance with
the authoritative accounting guidance for convertible debt instruments
that may be settled in cash.

Illumina, Inc.Reconciliation of Non-GAAP Financial
Guidance

The Company’s future performance and financial results are subject to
risks and uncertainties, and actual results could differ materially from
the guidance set forth below. Some of the factors that could affect the
Company’s financial results are stated above in this press release. More
information on potential factors that could affect the Company’s
financial results is included from time to time in the Company’s public
reports filed with the SEC, including the Company’s Form 10-K for the
fiscal year ended December 29, 2013 to be filed with the SEC, and the
Company’s Form 10-Q for the fiscal quarters ended March 31, 2013, June
29, 2013, and September 29, 2013. The Company assumes no obligation to
update any forward-looking statements or information.

(a) Legal contingencies represent charges to be recorded based on
a judgment associated with the patent litigation brought by Syntrix
BioSystems, Inc., or Syntrix. Illumina continues to believe that
Syntrix’s claims are without merit and are not supported by the law or
facts. Accordingly, on December 3, 2013, Illumina filed an appeal to the
court challenging the judgment.

(b) Non-cash interest expense is calculated in accordance with
the authoritative accounting guidance for convertible debt instruments
that may be settled in cash.